Auto sector facing shock at all levels, says Deloitte report

25th June 2020 By: Irma Venter - Creamer Media Senior Deputy Editor

Auto sector facing shock at all levels, says Deloitte report

The African automotive sector is facing major volatility at all levels of its value chain as a result of the ongoing Covid-19 global crisis, says a Deloitte Covid-19 survey, titled The Economic Impact of the Automotive Value Chain (AVC).

“Stakeholders across the sector, from traditional original equipment manufacturers (OEMs, or vehicle manufacturers), new entrant automakers, dealerships, suppliers and financial services providers are going to have to evolve and act immediately to succeed in the face of the pandemic.”

The survey included 127 respondents from four industry associations representing the AVC across Africa. 

“The automotive sector is one of the pillars of a country’s economy and is facing shocks at all levels,” says Deloitte Africa automotive sector leader Dr Martyn Davies.

“All players must rapidly evaluate the influence of the pandemic and take the required action to overcome its challenges, hand-in-hand with customers and employees.” 

“Findings from our survey indicate that Covid-19 brings with it an opportunity for the AVC processes to innovate, to become more customer centric and serve the needs of the market during this period and coming out of it,” adds Deloitte Africa automotive strategy lead Adheesh Ori.

The Deloitte report says that the state of play of the AVC was already under pressure prior to the pandemic, with 66% of the respondents reporting a decline in earnings and 57% already focusing on new ways of working, changing operating models and developing cost-saving initiatives. 

“Strategic innovation and digital transformation have expanded the way in which the automotive sector in Africa thinks about how to operate and why,” says Ori.

“For Africans, there are local nuances that demand a shift in operating models and strategies for the future. 

“Survey findings revealed that only 12% of businesses are looking to spend 50% and upward of their investments on strategy and innovation. It remains unclear which businesses will still be around in the next five to ten years,” says Ori.

Considering the eminent disruption in the global auto sector and the expected Africa Covid-19 pandemic peak, the automotive value chain in South Africa has begun to shift, by slightly increasing its focus on international markets. 

In South Africa, it will be important to create visibility for businesses’ supply chains to make agile decisions and improve liquidity to counter the effect of an expected further tightening of the market, says the report.

Currently, 51% of respondents estimated budgeted earnings would be halved or more. 

A post-Covid-19 Alert Level 1 outlook revealed that 63% of respondents are expecting to reach a “break-even” point in less than 12 months, with liquidity being a top continued area of focus. 

A shift of focus towards non-African markets, employee well-being and fast-tracked planning are seen as key response activities, notes the report.

Creating a safe return-to-work operational plan that fits the compliance standards set by the South African government has been a key focus for most companies in the sector, where less than a quarter of the workforce can work remotely, placing an emphasis on earnings reductions over employment cuts. 

Digitally upskilling the workforce to be able to work remotely and think differently remains a historic challenge, says the report.

A change in operating models and implementing new digital ways of working remain an area for growth.